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Italian bonds hit 7.4 per cent as Europe enters crisis mode

The price of borrowing for the Italian government is now at the same level which prompted bailouts for Ireland and Portugal.

Image: Andrew Medichini/AP

Updated, 11.09

THE COST OF BORROWING for the Italian government has reached a new record high this morning – reaching levels which are considered unsustainable by the majority of international traders.

The market yield of a 10-year bond – that is, the interest rate demanded by lenders giving loans to the Italian government for 10 years – this morning breached the 7 per cent mark, reaching 7.03 per cent by 10.10am.

By 10.25 the price had rocketed to 7.2 per cent, reaching 7.4 per cent shortly after 11am – despite the repeated intervention of the ECB, which has been buying Italian bonds, along with Spanish ones, trying to keep the prices down.

That threshold is seen as a key one, beyond which governments cannot realistically borrow cash from the open markets – forcing the Italian government to join the club of Greece, Ireland and Portugal who are reliant on ECB, EU and IMF emergency funding.

The new record costs come the morning after inspectors from the Troika arrived in Rome to oversee the implementation of the latest round of budget cutbacks – after which Silvio Berlusconi will resign as Prime Minister.

The rising prices of Italian borrowing may mean, however, that even the austerity measures may not be enough to ensure that Italy can retain its financial independence.

The size of a bailout for Italy – the world’s eighth-largest economy – could almost empty the European bailout fund, the EFSF, which only two weeks ago was expanded to an estimated capacity of around €1 trillion.

In an interview published in this morning’s La Stampa newspaper, the 75-year-old Berlusconi said that he would not in the next general election, which is likely to take place in February after the budget measures are enacted.

Italian general elections cannot take place within 60 days of the dissolution of parliament, meaning the government will prioritise the enactment of the latest austerity measures before Berlusconi resigns.

Berlusconi told La Stampa’s Mario Calabresi that while he was disappointed his political tenure was about to end, he was consoled by the fact that he would be Italy’s longest-serving prime minister of the post-war era.

When corrected by the journalist – who said he would only claim such a title had he served until the end of his five-year tenure, due to expire in early 2013 – he appeared deflated.

“This I didn’t know… shame, shame really. Okay, goodnight,” he said.

Shares in Berlusconi’s own Mediaset company have fallen dramatically this morning, wiping about €300m off the value of the company.

The price of Mediaset shares had fallen by 9.25 per cent by 10.15am Irish time – and had even been suspended from trading for over an hour.

Berlusconi to go – but what now for Italy?

Lagarde warns of ‘lost decade’ unless European crisis is fixed

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About the author:

Gavan Reilly

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